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Venture Money in Open Source
prostoalex writes "Interesting statistics from VentureOne and New York Times on open source venture capital investments: "In 1999 and 2000, according to VentureOne, venture capitalists invested $714 million in 71 open-source companies." Even more interesting stats: "Most of those projects collapsed." The article talks about both successes and failures: Red Hat, TurboLinux, JBoss."
Even more interesting stats: "Most of those projects collapsed."
Don't a large portion of ventures fail? Perhaps not directly related to them being open source.
Of course most of the projects collapsed! VCs dump money into lots of projects with the full knowledge that the vast majority won't come close to turning a profit. It's the handful that do that make a VC company a fortune.
Stop learning! Only you can prevent esoterrorism.
not worth reading...
Oh well, what the hell...
and how about America invest in educating our youth at the primary, secondary, and post-secondary levels, all of which are either horribly underfunded or horribly expensive? I guess the ROI isn't good enough, eh?
Going back to school for entry-level jobs?
So is RedHat a success or a failure?
of ventures are EXPECTED to fail by venture capitalists, it's par for the course. Sounds like open source is as good a venture as any!
While the money invested in open source is a lot, I'd venture to say it's but a fraction of total venture capitalist investment? correct me if I'm wrong.
Also, what's the point of this article? It's good, right, that open source is being given this attention? Why the complaints about the power of venture capitalists? They are keeping these open source projects alive.
Donate money to a standard (FHS) which can then reward distros for compliance with $$$.
It provides motivation to achieve the great end result (driver support, ease of use, unification of major players, etc).
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There wouldn't be much "venture" if those investments were a sure thing. VCs throw a lot of money around and hope that once in a while it sticks, and more than make up for the ones that don't. They're a little more conservative now than they were a few years ago, but that's cyclical. But $10m each (more or less) for 71 different companies is enough to count. I'd be curious, though, where $95M went with Turbolinux.
Interesting, too, that the Red Hat board member specifically talks about the comfort he feels in having big bucks backing that shop. It will be interesting to see if the few million that SugarCRM raised can possibly keep them going up against MS's CRM group, and hosted apps like SalesForce.com.
Don't disappoint your bird dog. Go to the range.
Red Hat is barely breaking even. It has a market capitalization of $2 billion. Big fucking deal. That means that the stock is grossly overpriced. Their P/E is twice what it should be. Insiders are selling. If that's what you call a succes, then that's not sayin' much about Open Source's ability to make money.
Yeah, it only made the front page because of buzz-words. You can get anything by an administrator that way...
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How much are those investments worth now??? Evin if the majority of the investements fail the few remaining can make enough to offset the failed investments. VC's don't aim to lose money, they take calculated risks in the hope that some will pay off TO THE MAXX!!!.
Typically at least four out of five fail, but they expect to make up for it with a 10- or 20-bagger (get out for 10x or 20x their initial investment).
How many 10- or 20-baggers have their been in the open source world? I can't think of any.
I'd be willing to be that if an equivalent study was done on "closed-source" companies, the losses would be substantially higher.
This study and the publication of it is sheer FUD. I'd love to see a counter-study that shows what the VCs lost by investing in closed-source companies.
The "closed-source" crowd loves to argue things like "Firefox isn't as secure as IE because it's not as pervasive, everyone targets IE because it's #1".
Ok, well since "open-source" wasn't as prevalent in 2000 as "closed-source", it clearly couldn't have been the cause of the losses of the VCs. Since the vast majority of the technology companies that crumbled in 2000 were "closed-source" companies.
Eat crow.
Don't think that a small group of dedicated individuals can't change the world. It's the only thing that ever has.
According to the former chairman of ArsDigita, VC basically pushed him out and run the business with their own man as CEO and killed ArsDigita. At first I was surprised by this but it seems that's the way VC operates.
http://waxy.org/random/arsdigita/
Paul Graham has an interested 'unified theroy of VC suckage' on his page
http://store.yahoo.com/paulgraham/venturecapital.h tml
very interesting read. Also I agree $750 mil is peanuts for VC. Greylock and Partners (mentiion in the ArsDigita story) alone manages over $2.2 billion in investments. That's just one investment company.
http://www.greylock.com/strategy/funding.cfm
I think we all pretty much know that most new ventures fail. By now, this is common knowledge, and there is NOTHING new or insightful about those kinds of remarks.
A better question that digs deeper: Is the failure rate for open source ventures higher or lower than the expected rates of failure in the software industry?
Personally, I'd be willing to bet that the failure rate for open source ventures IS higher than the expected industry average, because:
1) The idea of a business model based on open source is still relatively new (in terms of the history of the computer industry), and therefore more prone to high failure rate than a more mature sort of business model, like proprietary software.
2) Even though we may have seen some SMALL successes with new open source ventures here and there of late (e.g., Red Hat), it remains to be seen whether or not such ventures will be highly profitable in the long term. Red Hat is one of the few success stories you can point to, and even then, they are delivering nowhere NEAR the kind of returns Microsoft does. VCs generally tend to expect BIG returns, given that they're taking BIG risks.
Given these points, the fact of the matter is, there IS good reason to be wary of open source ventures, because they ARE risky, and so far, it is clear that they probably won't be as profitable as Microsoft, or even Apple. If I were a VC, my first question would be: which is a better bet for me in terms of making ME rich in the long term: a Red Hat, or a Microsoft?
Exactly. 9 out of 10 startups don't get money, and of those that do 9 out of 10 go bankrupt. The way I see it, these companies that are investing in open source are doing way better than average.
Failure : 3.2 Billion invested , another 500 million owed in 2024 ( 19 years , 27 million owed per year until then to make repayment. And they created there own worst nighmare : pulled out of the desktop and created Fedora ... Fedora is Red Hat competitor on the market costing them millions if not billions in income.
I'd be willing to be that if an equivalent study was done on "closed-source" companies, the losses would be substantially higher.
Unlikely. The google and salesforce.com IPOs along are enough to put several funds quite a ways into the money. While a lot of startups died when the bubble burst many made it through and have been on the upswing. VC funds have multi-year outlooks and expect a large fraction of the companies to fail.
The short answer is that very few funds lost by investing in closed source companies and many more ended up making a handsome profit. Not as much as in the bubble years of course, but how many VC groups have you noticed closing their doors and going back to I-banking? Thought so...
"In 1999 and 2000, according to VentureOne, venture capitalists invested $714 million in 71 open-source companies. Most of those projects collapsed."
Excuse me, but these are heavily biased numbers. Tons of startups collapsed. Heck, IIRC, one set of VC's dumped $600 Million into a company selling dog-food over the internet; and a different group dumped another $600 Million.
At least some of the Open Source companies survived from the general collapse of the dot-com era.
So these stats are very misleading. Fortunately, it seems like VCs are smart enough to recognize that.
The best way to predict the future is to create it. - Peter Drucker.
This number should go down to 70, because SCO can't be included in the count... :-)
A good idea, whether open source or not, can turn a profit. It just shows that many "great ideas" in IT are mediocre at best. It indeed is lying through statistics and I actually do enjoy working with Microsoft's products (minus IE and WMP)! It just seems to me that Microsoft does a bit better quality-wise with the products that cost you $$ - IE and WMP are sub-par while Excel and W2K are decent.
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Like the old saying says -- lies damned lies and statistics.
Sometimes boldness is in fashion. Sometimes only the brave will be bold.
Don't forget that while regular startups would fall because if high software and personnel costs, those open source startups with free software shipped Second Day Express from Free Software Foundation and friendly geeks, ready to work for peanuts, since Linux is is superior technology, were not supposed to have those problems.
Meanwhile those who understood that open source is a piece of shit most of the time, and switched to paid model (think SixApart), are still around.
Yes, and that just goes to show that most of the time open source is better in a business than as a business. Cooperative investments in open source by multiple businesses are what made open source what it is today.
Occam's razor is the blind faith in the natural selection of least resistance and in universal oversimplification. -- EF
Well, the above is a joke, but what drove me nuts in the 1999-2000 time frame was that all kinds of companies with lame names that were supposed to sound innovative issued press release after press release that basically said nothing but used the kinds of words found in the Official Bullshit Generator. All kinds of venture capitalists who thought they were going to be the next Gill Bates bet the farm on these companies, and subsequently lost everything. Some of these companies claimed they were so innovative because they provided programmers with lots of room, lots of light, allowed nerf toys to be used at the office (yes, I am serious!), and all kinds of further bullshit that businesses don't do because that's not how you make money. (As if, you know, businesses have existed for thousands of years, and only now, it took some innovative computer geek to come up with a better way to do business by throwing away centuries of experience.) And what's that about lots of light? What hacker do you know who likes lots of light? Personally, I like my screen dark, my room dark, the shades drawn, and sunglasses on, just in case, so I can't see the darker characters in the terminal... Otherwise, where would the grue come from? But what drove me the most nuts was that most of the vaporware these phony technology companies came up with were products that nobody would ever want or need anyway. For example, Be, Inc., whose programmers worked their asses off for a decade to create a bitchen OS, changed focus from operating systems to internet appliances in the wake of dumb press releases like the above. When asked what an internet appliance was, they said, "It's a refrigerator with an internet connection, so you can check your email on your refrigerator." What a dumb move, which shortly destroyed the company. Other companies, which didn't even exist prior to 1999, invented truly dumb devices... like a picture frame that's actually an LCD monitor, so you can have the picture change every so often. Yeah, like I'm gonna spend the $500 that an LCD cost back then to get such a useless gimmick out of it. Oh well... I don't want to think about the bullshit bubble.
Now there's an open source company with a stock chart to be proud of.
"... of ventures are EXPECTED to fail by venture capitalists, it's par for the course. Sounds like open source is as good a venture as any!"
Unless of course you're a content provider. Then by slashdot standards, you're "old and busted", or "old business model" if you take those kind of chances.
But given some spectacular open-source failures in the late 1990's, a natural question may be whether some of these venture capitalists have perhaps lost their minds.
By this measure, VC's should run away from a closed source venture like Darl McBride from an honest judge...
That kind of failure percentage is bigtime exaggeration. It's more like 5 out of 10 go bankrupt. Even then, it varies field to field. Not every startup is computer related.
I read somewhere that (the downsized) Turbolinux broke even in 2004. Still, that's because they're small, lean and focused, like other *small* Linux companies.
>Insiders are selling.
They'd better be; last time I checked their growth (newly added RHN subscriptions) was slowing down.
Still, there were lucky that they went public when they did, else, they'd be a Sun department by now.
Most of these projects, like most VC projects of any kind, were not only expected to fail, they were required to fail.
Consider LinuxCare: the VCs installed crooked executives who raided the cash box, handing much of it to the VC's other ventures, and pocketing the rest.
How many startups got a few million and then handed half over to Oracle, Sun, and EMC, and handed the rest to the execs, and then folded? How many went on a buying spree, handing over boatloads of inflated shares to the VCs (to sell immediately) in exchange for other failing companies, right before they tanked themselves? How many went public and the bankers got enormous kickbacks, buying captive shares at a fraction of their value the next day, and then selling out immediately? The losers were not the VCs -- they made out like bandits on those "failures".
Enormous amounts of money changed hands under very little official scrutiny. That was the point. Business successes, where they happened despite all, were just icing on the cake.
"The article talks about both successes and failures: Red Hat, TurboLinux, JBoss."
For an extra 200 points, match which label goes with which product!
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Open Source Sysadmin
This isn't such a good idea. You see, Open Source, being Open Source, can be copied, modified, re-distributed free of charge. Now imagine that, say Debian, achieves this standard complience. What stops say Ubuntu to build on that success and then claim their piece of the pie?
Now that was Ubuntu, but what stops me to create my own distro CocoTonix, based on this standardized Debian and claim my piece of the loot?
And the line would have to be drawn somewhere. And it wouldn't be just in minds of many.
Don't a large portion of ventures fail? Perhaps not directly related to them being open source.
I deal with VCs pretty regularly. The basic rule of thumb is that out of 10 investments most VCs make, 1-3 will be total busts, 7-8 will be close to breakeven or make a small profit and 1-2 will be home runs. The key is that the home runs are big enough that they make up for the rest of the investments that go no where. In some ways it's high risk but they also have a lot more control over the investments than a mutual fund.
Things get tough for VCs when there is too much money chasing too few good opportunties. Venture funds are very much like the mutual funds we all own except the companies the fund owns aren't usually traded on a stock exchange. Rich individuals and companies/organizations contribute money to a pool which the VC then invests in companies. (could be start ups but not necessarily) They then either take these companies public or sell them to a larger company and return the profits to the investors. I've seen lots of people who think VCs were stupid during the
Not correct, I think.
IIRC, they expect 20% to fail miserabily, 30% to not give any benefit at all, 30% to give very little benefits, and 20% to compense for the full stack.
according to wikipedia, "anywhere from 20 to 90% of the enterprises funded fail to return the invested capital"
http://en.wikipedia.org/wiki/Venture_capital
Actually, you can get an LCD picture frame for about 100 dollars these days. And with digital cameras outselling traditional cameras, the price is worth it. They were just ahead of their time.
Exactly how many thousands of years have software companies been profitably running? A lot of what happened during the Bubble was in reaction to things that were wrong at regular monolithic companies. People do need more room to work than most companies give them. People need to take their mind off of work every now and then. (I remember visiting software development firms in the 80's and ping pong ball guns being present). Studies have shown that the average worker produces the most overall if they're slacking off 20% of the time. Aeron chairs, while gratuitous, are a lot more comfortable than the average office chair. Low light, and the narrow-spectrum light output by cheap flourescent office lights, are responsible for Seasonal Affective Disorder, or more plainly low light exposure levels cause depression. Out of this time we also got RSI-reduction keyboards, nonlinear office layouts, and a refocusing on morale of the individual over the "Office Space" style dronage where nobody cares what they do. There are also the "casual everydays," because a suit doesn't help you do your job as a coder any more than an optimized compiler would help an executive improve vendor relationships. Perks which had been dropping for years were suddenly brought forward as a way to improve worker relations and moral for less money than just paying them. My company is paying less for my health, dental, vision, accidental death and dismemberment, etc than they would have to pay me in cold hard cash to keep me as contented.
Maybe I should, but I don't feel so bad about the venture capitalists. To the average user with a clue, an internet-connected toaster was a joke, not something you would invest millions of dollars in. Even if the tech could be perfected, and it could pretty easily... so what? The investors in a company should know more than the average man on the street, but they allowed themselves to be blinded by greed. Instead of approaching anything rationally, they were driven by the potential for hundreds of trillions of dollars. Some of the ideas were either good or noble yet failed anyway, but many of the investors totally lost perspective and invested in junk. The AOL Time-Warner merger is the perfect example of this. Everyone at AOL knew they hit the proverbial jackpot, and everyone on the street knew Time-Warner was being an idiot.
In case you haven't noticed, companies are still releasing press releases that sound like they're from the bullshit generator.
The ______ Agenda
The bullshit bubble that Wall Street scumbags knew we bullshit. Those offerings were retarded .. open at $27 & close at $127. That is called screwing your client, or, put another way, gross negligence & violation of fiduciary duty. But, dont worry though, good ole Amerikan law come through & fined them $600 million for the billions that they made off of it.
Meet the new boos, same as the old boss.
Saw this happen at a VC-funded company I worked at back in the 1980s when they put in their own CEO who dictated a $70 price point for a C-64 music software package.
Tech Public Policy stuff
VCs simply are not that smart.
Come one guys, lets consider the coder base difference between Open Source and Proprietary, what the adverage coder earns for his work.
Let me suggest that VC's, if provided a free worker base, would still manage to lose money for the most part.
Isn't that what this is really saying?
Open source is done in a mode of sharing code, and this includes the benefit of not having to start from scratch.
If you cannot take something of such nature and cause improvement to hapren that are of benefit in value return to you, then you genuinely are not very smart.
Maybe neither are those who get VCs to give them money and then fail.
NASA stories of recent seems to suggest they have something of a clue.
Here is an example:
who would find benefit in investing in GIMP? or CUPS improvements?
Printer and paper supply companies.
Investing in FOSS to improve the market for another product.
And what would anyone object to having such investors/sponsors lised in the "about" menu item and any other place that is non-interfering with the operation of teh application?
How about computer hardware vendors... Providing a FOSS OS with their system has to have some value in improving price performance of their product.
Seems to me there is a large failure to understand indirect profiting off of FOSS, cept for maybe those who pursue system support.
The Big question: How do you profit off of that which is free?
A: Indirectly.
Just as Open Source tracks code contributions, it can and should track sponsors. A matter of credit where credit is due.
See, "profit" with stocks is _not_ the same thing as investing in a company that turns a profit from selling goods. Unless a company pays dividends, and most don't, the company's turning a profit is worth exactly _nothing_ by itself to a shareholder.
Trading stock is no more than trading pieces of paper, with no intrinsic value. The only value is what everyone else is willing to pay for one. It's an exercise in guessing what the other lemmings will do, and which company's hype is more.
The way to make money in the stock market is to buy low and sell high.
Investing in a company that's steadily churning profit, but doesn't cause enough hype for its stock to rise, is actually a _bad_ investment. It's the kind of investment that gives _you_ exactly _zero_ profit. That's the kind of stocks you want to sell.
(Point in case, at some point the value of 3Com was _less_ than the value of shares it owned in Palm. So the rest of 3Com actually had a _negative_ value on the stock market. We're talking divisions which turned a solid steady profit. Yet the stock market considered them a _liability_.)
Investing in a startup that causes a lot of hype and whose shares quadruple in price within months, is good. It doesn't even matter if it makes a profit or even if it sells anything. Even if the company is dying a slow death, that quadrupling of share value means a 300% profit for _you_ if you sell before it bombs.
So let's look at investing in a company like Red Hat: Investing 10 million in a non-profitable company and ending up with half a _billion_ worth of grossly overpriced stock anyway... is it a success? Yes, it is a success. It's a freaking huge success. It's such a great success, it's every VC's wet dream. It's the stuff that causes them to wake up and go change their underwear.
A polar bear is a cartesian bear after a coordinate transform.
Of course most of the projects collapsed! VCs dump money into lots of projects with the full knowledge that the vast majority won't come close to turning a profit.
False.
Steve Bourne gave a talk last year at Columbia University about his Venture Capital company, El Dorado Ventures (it's a fascinating story how he went from writing Unix shells to becoming a VC). I forget the exact details, but trust me when I say that VC firms most certainly do not expect their projects to fail. Out of all the proposals that come their way, they allow a very small fraction to give one hour presentations to the VC firm partners. From those, they select an even smaller percentage to actually fund.
IIRC, roughly half the projects fail.
It's the handful that do that make a VC company a fortune.
Perhaps. Still referring to Dr. Bourne's talk, out of the half that do not fail, a majority of those are successful and give the VC firms fairly good returns on their investment. A very small fraction of those are "astronomically successful" and give the VC firm a very good return on their investment. He did emphasize however that the number of projects in this last group was quite small.
Overall, I got the impression that they thoroughly screen the projects that they invest in and I'm fairly certain other VC firms do the exact same thing.
You make a mistake in thinking that VC firms "gamble" with their capital, i.e. that they put a million dollars each into 10 companies, expect 9 to fail, and the 10th to return 100 million. This is most certainly not the case. Partners in VC firms did not get their positions by throwing huge sums of cash around so easily.
ThomasSo while getting 10M$ on a silver plate would of course be a cause for celebration for the recipient, it would normally be very difficult for a software company in its early stages to find ways of spending it productively, so that you can actually get any return on the investment.
In the article Software patents and financial investing venture capitlist Laura Creighton explains how it typically works. (The article is is mostly about software patents, but covers the topic of investing in software companies as well.)
An extract from the article:
She goes on to explain how software patents were percieved by some to provide a solution to this problem, but how that perception turned out to be an expensive mirage calle "the Internet Bubble".It's a long article, but an interesting read if you have the time.
Christian Engström, Former Member of the European Parliament 2009-2014 for The Pirate Party, Sweden
OSF is great for standards committees and good money for individual and localized experts and contributors, but as a business model -- spending ooodles and ooodles of money to develope something for the majority of people to use for free isn't a sucessfull big business venture model.
Posted anonymously because I don't want to tip anyone off.
So how do you find one of these guys?
I'd like to run my own business, and I've got the technical wherewithal to pull it off, but I lack the short-term funding to pay for equipment, overhead, and my salary until the business could support it.
Some sort of VC investment would be perfect - I think.
How do you fid these guys? Are they all weasels?
One poster said correctly that, out of 10 deals, a VC looks for 1-2 home runs, maybe 3-4 breakevens and the rest are total losses. What smart VCs do is take a perspective on the market as a whole and bet on what are the coming hot segments. Then they carefully place a few bets in those spaces. To be chosen, a company has to have a top management team, be focused (or re-focusable) on the laser-narrow segment of the market that corresponds to the VC's view, have a "correct" business model, and can check off a whole list of other variables. Everything about the company has to right, down to what color ties the CEO wears (if any).
Basically, a VC manages his risk by only choosing companies that meet a whole range of very narrow constraints, with the only degree of freedom being the specific market segment, and that is chosen by the VC.
This year, the VCs' tea leaves are showing open source as the hot space.
One very interesting comment in TFA was the initial reaction to Fleury's attempts to get funded four years ago: "you must be nuts." Since he didn't fit the VCs' pre-established business-model checkbox at that time, he couldn't get funded. The VC view of the world has changed, and now the "open source" aspect is the hot one.
Another thing good VCs always do is fund to milestones. If you don't hit substantially all of your targets, they will ruthlessly shoot you in the head and not fund your next round.
This will either win big for the early VCs or it will fail. We'll know in about a year (that's a typical length for a funding round).
Novell is going to have a big influence on open source capital. If they succeed in transitioning their business, and so far they are looking good, the VC's will have another model to emulate.
In 1999 and 2000, it was going into the .com crash that saw a LOT of tech companies go under. If you make a product, opensource or not, and your customer base suddenly shrinks by a huge amount, is it the fault of the start-ups not having a good idea or product?
.com crash was due to companies that were getting funding in 1997 and 1998 that didn't have a product yet. The hype surrounding the Internet was enough to get funding for a lot of go-nowhere companies that didn't have a product, just an idea. So the venture money was burned through while developing the product, and there wasn't enough left after that to let the company survive while trying to build a customer base. These are the companies that finally caused the crash. Investors saw companies they had invested in with no money and a product that wasn't selling. So suddenly they pulled back, and you saw a number of these companies go under.
.com crash was that many were started by MBA types who had no technical ability on their own, but had an idea. They in turn would hire a bunch of vice presidents, who in turn would hire managers and directors. But there wasn't a product yet. These companies were running on venture money, and were acting like a successful business, except for the lack of product and customer revenue. By the time the company would have a product, there would be over 100 people working there, but with no revenue. So the race would start....get enough customers and money comming in to support all these people before the money ran out.
.com crash happened, and the startups dropped out, there was a LOT of equipment out there, demand dropped by a LOT, and the big players needed to scale back or go out of business.
A huge part of the
Another problem with a lot of start-ups going into the
So, the money ran out, Sun and Cisco ran into problems because they had grown HUGE due to demand by all the start-ups over the previous three years. Once the
Now, there is the start of a recovery, and start-up companies are comming back, slowly. The venture firms have learned that they shouldn't invest in companies without a product(or so I would hope). Open source or not, if a company has a good product with a way of bringing in money and isn't bloated, these companies are worth looking at to bring in venture money.
Open Source doesn't mean a company doesn't bring in money, and that is the key. Management bloat is also the thing that will kill most companies, regardless of how well the company may be doing. Stupid decisions, like turning tech support into a non-technical job that is treated like customer service will also hurt or kill a company.
So, it's not strange to see Open Source products getting venture money, but it is unusual to see an Open Source start-up that is able to bring in money.
See: http://www.joelonsoftware.com/articles/VC.htmlp _fin/papers/SER-VCandGrowth_WP_dec_2002.pdf o ok/TransU4L2.htm
http://www.research.smu.edu.sg/faculty/edge/entre
http://lrrc3.sas.upenn.edu/chinese/business/textb
Stop learning! Only you can prevent esoterrorism.
So his beef, if you've actually read that link, is that the VC actually started letting people work 40 hour weeks. No, really read the text. His company was oh, so profitable, based on asking people to work 6x12 weeks without compensation.
Also he says "it would have been hard to lose money paying MIT-educated programmers $50-85,000 base salaries". Yet the limit at which you don't have to pay for overtime any more, even for software, is $90,000 per year.
I.e., this fucktard was breaking the employment laws.
And his argument is, basically, "waah! but 40 hours work weeks and reasonable salaries cut our profitability!"
I dunno about you, but suddenly that makes the VC company seem like the good guys there to me. Or at least the guys with a _clue_.
His justifications are plain old bullshit. Every other paragraph he keeps trying to squeeze in that that's just the normal way to run a software company, and surely MS employees have to come to work on weekends too. Which is bullshit.
He also admits that he was at the point where he didn't know any more who does what, and until when. By any management common sense, there was no fucking way to continue that explosive growth in employees without extra management. You can't personally run 80 people (and growing fast), like you can run a 5 people start-up.
Yet he blames the VC CEO for bringing more managers, to actually manage those people. He files that under increasing the infrastructure costs. Well, gee, yes, that's what you get past a certain size.
Etc.
Gee, wizz... It seems to me like it wasn't the VC CEO that was the idiot PHB there.
A polar bear is a cartesian bear after a coordinate transform.
Disclaimer: I am not an investment advisor. This is not investment advice. Your actual mileage may vary.
I have a modest amount of money that I used to set up a rollover IRA. I invest it in a combination of stocks and mutual funds. I chose some international funds, because some of the markets overseas are just too hot to pass up. Domestically, I have some open source companies -- Red Hat, Novell, and VA Linux. They have all taken quite a beating in the dot com bust, but I bought after that, buying at relatively low prices.
Consider the SCO vs. IBM lawsuit. I missed the opportunity to short SCO. If I can't bet on the sure losers to lose, I can bet on the winners to win. A victory in that case won't do much for IBM, but it could be massive for the companies who actually sell Linux.
IMHO, each of the open source companies has some core value -- services and products that simply cannot be allowed to disappear. If their stock drops low enough, they get bought out by the companies who need this stuff to survive. The value of those products and services transcends the revenue/profit that they generate today. If you really want to be cynical, consider the "nuisance value" of these companies. What would Microsoft be willing to pay to make them go away?
At some point, I expect IBM to buy Red Hat or possibly Mandrake. The motivation for IBM to do this might be to prevent Sun from doing it first. Even if IBM, Sun, or [gasp!] MSFT creates their own Red Hat knock-off (like White Box or Centos), Red Hat would benefit indirectly. Novell already bought SUSE, so the precedent has been established.
I would like to see one of the big mutual fund companies start an open-source mutual fund. That way, small investors (like me) could efficiently diversify our open source portfolios and get into some of the privately held companies. For example, I really like Zope. I have a multinational deployment that is so large and sucessful, it's mere existance is something we would like to keep away from competitors. I would buy Zope if they were publicly traded, else I need a mutual fund to put a deal together and get into the action.
Partners in VC firms did not get their positions by throwing huge sums of cash around so easily.
Right, it was their parents.
Ahhh class warfare.
I have been involved with many startups at pre/post incubation stages and on the road to (what the startup's regarded as "the holy grail") funding.
The core team of the startup already cultivates a business idea. The core team and their advisors make the toughie decision to Opensource parts or the whole of their "software". Before going to the VCs, they consult a lawyer on the impact of what is opensourced and the VCs interest.
Finally, the agreement is met, the pie is split between the "investment team" and the "founding/working team" and things go on as in any other investment. The Phases of equity investment are discussed and the returns are discussed vis a vis performance requirements.
Opening/Closing source does not play a quintessential role here, as long as what is actual property of the company, "hardware design" or "algorithm" or "implementation of mathematical concept" is protected as IP (if you are gunning products [software/hardware]) and not just services. A good consulting lawyer plus further help from say Ernst&Young[miscellaneously typed] helps in these stages.
It would be very difficult to actually classify a company on business model of their final product and term it open/close source and further statistically plot performance. As such entities blend into the landscape of the vertical / horizontal they are targeting.
No Greater Friend, No Greater Enemy! (Lucius Cornelius Sulla)
a sample size of one does not a study make.
most VCs operate in the fashion that you claim they do not operate in.
The upshot of all this is there is certainly truth in the phrase "patience is a virtue".
It is much better to keep control of your own operations and grow slowly, than to become beholden to VCs - who will more than likely take over and destroy your hard work.
Lodragan Draoidh
The more you explain it, the more I don't understand it. - Mark Twain
Actually, almost all of that money went to Red Hat or VA Linux (or companies that got bought out by them.) But if you look at it by the dollars, that's about 50%, or even money.
You need a business plan. Even if you want to stay small and private you should have one. A business plan is not about the plan it is about the research you do in order to write it! The plan is about forcing you to think about where the market it really going, and if sales really can grow as you want them to.
A stack of receipts is a useless indicator of how things will continue. An obvious example: a y2k consultant would have a large stack in December 1999, but clearly that business dried up literally overnight. The receipts would not tell you think, but a good business plan would. Not all business ventures on the verge of failure have obvious indicators they are going down fast. If you do the research on your plan you will know and have a plan to be making money elsewhere when it happens.
However in this case that is irrelevant. This guy wants to grow his business faster than he can raise money personally or from profits. He has no choice but get outside help. That means he needs something to show the bankers and venture capitalists. He is going to have a hard enough time getting to talk to them with a good business plan, they won't even look at him until after they have studied that plan. In fact his first task is to convince them to read his plan, which they won't want to take the time to do for an unknown. (which is why I said start a different business first so he is not an unknown)
Eventually all projects/businesses/empires fail.
Ask how long they last, not whether they be immortal.